Thanks! It's weird, but I did what you said and I'm still getting "Firefox doesn't know how to open this address, because the protocol (magnet) isn't associated with any program", even after restarting Firefox. Do you know why that could be?
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obvio171Sep 21 '09 at 15:29

I was using gentoo + Firefox 19. When I had the problem, adding stuff to 'about:config' won't help and I don't see "Magnet" under Preference -> Applications. Eventually I found the problem and it may have something to do with the KDE mime type configurations.

I changed /usr/share/applications/kde4/ktorrent.desktop
by appending: x-scheme-handler/magnet; to 'MimeType=xxx'

Then I edited ~/.local/share/applications/mimeapps.list
by inserting the line: x-scheme-handler/magnet=kde4-ktorrent.desktop

Then, if I click on an magnet link, firefox will pop up a dialog asking what application to use instead of saying not understanding protocol. After the pop up, you need to select ktorrent's binary (/usr/bin/ktorrent on my computer).